Why Business Valuation in Divorce Is a Key Component of Your Financial Security

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Why Business Valuation in Divorce Is a Key Component of Your Financial Security

Why Business Valuation in Divorce Is a Key Component of Your Financial SecurityWhen spouses divorce, it is critical that your spouse’s business interests be identified and fully valued for several reasons.

  • You have a right to the equitable share of the marital assets, which may include a share in a business.
  • The value of a business is a good indicator of how much income your spouse earns.
  • The amount of gross income your spouse makes affects the amount of child support he/she has to pay and the amount of alimony you may be entitled to receive.

In divorce settlements, one option is to sell the business and then divide the shares in accordance with the equitable distribution split. Often, though, it is not advantageous for either spouse to sell the business interests. Once the business is sold, the owner may no longer have a source of income.

Instead, we find it may be better for some clients to trade their right to a share in the business for something they really want. For example, if a wife wants to keep the marital home, she may be able to buy out her spouse’s equitable share in the home by trading her equitable share in the business.

How is a business valued in Maryland?

The answer depends on the structure of the business and the interest each spouse has in the business.

  • Sole proprietorship. In this business situation, your spouse owns the full business. The value of the business usually is based on a review of how much income the business makes, the value of the assets including real estate and equipment, and the amount of any business debts.
  • Partnership arrangements are usually based on a written partnership agreement. The way in which the partnership interest is valued is usually set forth in the agreement. The interest can also be valued by reviewing the yearly profits, assets, and debts.
  • Corporate interest. Corporate ownership of a business is typically based on the value of the shares of stock multiplied by the number of shares the spouse owns.

Why you want an attorney with experience representing business owners

Our lawyers understand that the value of the business is affected by other issues. When selling a partnership interest, for example, it is usual for one of the other partners to have the first right to buy the spouse’s interest. Partners and shareholders can still work for the companies after they sell their interest – assuming they worked for the company before the sale.

The sale of a business may also be governed by Maryland state law, depending on the type of business you have. Furthermore, the timing of the sale of a business interest may affect the amount of personal taxes a spouse must pay. Even if you and your spouse agree completely on how and when to divide a business, there are still other considerations to review.

Our attorneys understand that dividing a business is different than dividing the furniture or the cookware. We work with professional business appraisers, accountants, tax professionals, and other financial business professionals who can document the worth of a business. Our lawyers explain to our clients that the value of a business is what an interested buyer would pay to a willing seller.

At Cynthia H. Clark & Associates, LLC, our lawyers understand that preparation and strategy are essential to obtaining a strong settlement for our clients. To speak with our lawyers, please call 410.921.2422 or complete our contact form.

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